Global commodity prices drive GCC inflation but return to 2008 rates is unlikely
Inflation in Gulf oil producers is expected to edge up to more than four per cent through 2011 because of high global commodity prices but it is unlikely to return to the 2008 double-digit rates, a Kuwait bank has said.
After recording a rate of three per cent in 2010, inflation in the six-nation Gulf Cooperation Council (GCC) is expected to accelerate to more than four per cent in 2011, National Bank of Kuwait (NBK) said in a study.
"Higher inflation rates are expected across all GCC countries, although with varying degrees. The increase in GCC inflation will be largely driven by rising global commodity prices - and especially food prices, which could remain elevated this year," the six-page study said.
"Similarly, energy prices may continue to rise in 2011 on the back of growing demand from emerging markets and the current political instability across the Middle East and North Africa (MENA) region. This in itself will tend to boost economic growth in the GCC, and sustain inflationary pressures."
But the report said that even if inflation heads higher in the short run, the rate is still unlikely to reach the double digits recorded in 2008.
"Factors that had largely contributed to the previous peak in prices - notably rapid economic growth rates and soaring housing rents - are currently out of the picture. Moreover, commodity prices are notoriously volatile," NBK said.
"As fast as they have managed to push inflation higher in recent months, the process could go into reverse if commodity prices begin to flatten out or fall."
The report recalled that inflation in the GCC, which controls over 40 per cent of the world''s proven oil deposits, rocketed from almost zero at the start of the decade to a peak of more than 11 per cent in 2008.
With the onset of the global economic crisis in September 2008, inflation rates dropped to around three per cent in 2009.
"Nevertheless, the global recovery in 2010 has set the stage for the return of inflationary pressures. Although the average rate of inflation was unchanged from 2009, this masks acceleration during the course of the year," NBK said.